Spring Budget 2021

‘Pragmatic steps’ but far from ‘whatever it takes’

By Stuart Stone contact

- Last updated on GMT

‘Good’ but short-term: ‘this is just the start of the journey on the hard road to long-term recovery for our sector,’ the BBPA’s Emma McClarkin said
‘Good’ but short-term: ‘this is just the start of the journey on the hard road to long-term recovery for our sector,’ the BBPA’s Emma McClarkin said

Related tags: Finance, Budget, Pubco + head office, Legislation, Coronavirus, Rishi Sunak, Tax, Beer

What impact will Chancellor of the Exchequer Rishi Sunak’s latest Budget have on the pub sector as it navigates the Government’s post-lockdown roadmap?

The Chancellor maintained that while the Government has pledged £280bn of support in its “unprecedented” response to the Covid-19 pandemic thus far – “one of most comprehensive and generous in the world” – he would do “whatever it takes” in his latest Budget to keep the economy on track to return to pre-Covid levels by middle of next year.

Thus, the 3 March Spring Budget detailed Rishi Sunak’s plan to steer the UK economy out of its largest annual slump (9.9%) since the Great Frost of 1709 when the economy shrank by 13%.

It’s been well documented that the hospitality sector has borne far more than its fair share of the brunt, with in the region of 660,000 sector jobs​​ lost in 2020 according to the latest figures from software provider Fourth. 

What’s more, food and beverage service output from venues such as pubs almost halved (48%) over the past year according to the Office for National Statistics, while a licensed venue has closed on average every 48 minutes since December 2019 as per the latest Market Recovery Monitor from CGA and AlixPartners. 

Though the Chancellor outlined an extra £65bn in spending – with the total cost of the UK’s coronavirus response set to reach £407bn by the end of next year – the recurring theme from pub sector commentators seems to be that the measures offer a solid start rather than long-term fixes – or “whatever it takes” – in helping the industry bounce back from its Covid symptoms.

£485m VAT cut leaves wet-led pubs high and dry – again 

Sunak stated that the temporary reduction in VAT from 20% to 5% on food, soft drinks and accommodation would be extended for a further six months until 30 September​ – a measure that the British Beer and Pub Association (BBPA) calculates is worth £485m to pubs.

On top of this, the Chancellor revealed that rather than returning to the 20% rate in the autumn, the Government would introduce a 12.5% interim rate for a further six months, meaning that the standard rate won’t be reintroduced until April 2022. 

Though UKHospitality (UKH) chief executive Kate Nicholls described the extension of the lower rate until autumn as “absolutely crucial”, she implored the Government to make changes more long-lasting for pub, bar and restaurant operators.  

“While it would have been better to have extended the 5% rate further, it is now vital that the Government looks at introducing the interim rate for hospitality on a permanent basis,” she continued. “It would be a positive legacy of an otherwise dreadful year for our sector.  

“A permanent reduced rate of VAT for hospitality would redress the unfair tax imbalance that our businesses have faced for too long and make us internationally competitive." 

Yet while VAT measures worth almost half-a-billion were lauded in some quarters, bosses from the British Institute of Innkeeping (BII) and the Campaign for Real Ale (CAMRA) once again bemoaned the exclusion of alcoholic drinks – once again leaving wet-led pubs high and dry. 

“The extension of the VAT cut is welcomed, helping food businesses through the summer, however for our community wet-led pubs, the benefit will be extremely limited, and they will not be able to trade profitably until all restrictions are removed,” the BII’s chief executive Steve Alton explained.

CAMRA national chairman Nik Antona added: “Cutting VAT as pubs begin to reopen, and reducing it until April next year, means they can now start benefiting from that cut – but CAMRA believes this VAT cut should be extended to alcohol so that traditional locals that don’t serve food can benefit too.” 

Rates holiday to keep ‘wolves from the door’ 

Pubs will also not have to pay any Business Rates until June after the Chancellor scrapped payments for a further three months​ – saving operators an estimated £193.66m according to real estate adviser Altus Group. 

What’s more, rates will not go back up to the standard rate for nine months from June but will be reduced by approximately 67% up to £2m for closed businesses with a lower cap introduced for those who have been able to open.

While the measure was broadly welcomed by sector stakeholders, concerns were raised that the Chancellor’s staggered return to the standard rate will stifle large and small operators alike as they attempt to turn a post-lockdown profit. 

“The confirmation of further reductions in Business Rates will allow them time to recover, but until our nation’s pubs are able to return to normal trading, the vast majority of these businesses will still be loss making,” the BII’s Alton explained. 

Nick Mackenzie, CEO of Suffolk-based brewer and pub operator Greene King, added: “While the business rates extension will help our tenants and smaller businesses, the £2m cap from the end of June, just nine days after planned full reopening, means larger businesses will be denied millions of pounds in vital relief at a critical time.” 

Additionally, both CAMRA’s Nik Antona and BBPA boss Emma McClarkin argued that the measure doesn’t quite go far enough.  

“Extending the business rates holiday until the end of June will help keep the wolves from the door for many English pubs, with the two-thirds reduction for the rest of the financial year a welcome step,” Antona said. “However, given how tough it will be for many pubs we believe the 100% cut in business rates needs to be extended for a full 12 months as has already happened in Scotland.” 

McClarkin added: “We campaigned hard for an extension of the business rates holiday and the Chancellor announced a 100% cut on rates until June and up to a 66% cut for the following 9 months. 

“This is good news, but the proposed cap will mean many pub businesses will not benefit fully from this.”

Will ‘lifeline’ grants stretch far enough? 

Almost a week prior to the Spring Budget statement, it was announced that pubs will be able to access Government grants of up to £18,000​ to help them survive until restrictions are eased – worth an estimated £400m to operators according to the BBPA.

Properties with a rateable value of £15,000 or under will receive £8,000 while those with a value between £15,000 and £51,000 will receive £12,000. Pubs with a rateable value of £51,000 or over will receive £18,000.

A further £425m has also been added to the Additional Restrictions Grant (ARG) fund to help businesses not receiving the grants.

While the announcement was broadly welcomed by the trade, a number of commentators expressed doubts over whether they’ll stretch far enough for cash-strapped operators – especially amid well-documented delays in distributing funds​. 

Lawson Mountstevens, managing director of Star Pubs & Bars – which has invested close to £50m in rent reductions – said that further financial support outlined by the chancellor provides a “much-needed lifeline to an industry on its knees”.

However, Admiral Taverns’ chief executive Chris Jowsey described the grants alone as “insufficient” to ensure the long-term future of community wet-led pubs, while the BII’s Steve Alton said they “in no way” cover the basic running costs of closed pubs nor compensates them for lost income.

“For many of our members, these grants will not even cover the furlough contributions that will be needed to safeguard their teams until May, let alone June,” he added.

On top of this, the BBPA’s Emma McClarkin and Greene King’s Nick Mackenzie urged the Government to clarify its stance on the State Aid cap, which both believe could prevent pubs from accessing financial support.

In December, the European Commission allowed the UK to apply a revised Covid-19 State Aid Temporary Framework, including an increased limit from the original €800,000 (£731,160) threshold per company over three years to €3m (£2.7m).

“We need Government to clarify this urgently and remove the cap to ensure all businesses can benefit,” Mackenzie said. 

However, as reported on 4 March, the State Aid cap was increased to more than £10m​, offering larger pub, bar and restaurant firms greater access to Government-backed grants outlined in the Spring Budget.

Duty freeze a ‘pragmatic step’ in the right direction

Rishi Sunak announced that planned duty increases on beer, cider, wine and spirits have been cancelled for a second year on the spin​.

In the days prior to his latest Budget speech, Sunak had stated that alcohol duty would be addressed and referenced his cancellation of planned increases to beer, cider, wine and spirit duty in last year’s Spring Budget.​​

While the Wine & Spirit Trade Association’s chief executive Miles Beale described the measure as a sign that teetotal Sunak seems to “get it” and said he will “raise a glass” to the chancellor, other commentators were less lavish in their praise.

While the measure was described as a “pragmatic step” by UKH chief executive Kate Nicholls, she holds out hope of longer-term reform.  

“Additional costs were the last thing that businesses needed at the minute,” she explained. “As we emerge from the crisis, we hope that the Government will seriously consider a separate rate, long pushed for by this sector, for on-trade alcohol.” 

What’s more, while Carlsberg Marston’s Brewing Company CEO, Paul Davies, interpreted the freeze as recognition of “the vital role that beer and brewing plays in the UK economy”, he also acknowledged that it was far from job done for the Government.

“More will be needed, and ongoing financial support directly targeted at the brewing industry will be essential if our industry is to recover financially from the last 12 months,” he said. “We also remain hopeful that the Government will review beer duty within the Alcohol Duty Review to further support brewers and pubs.”

CAMRA’s Antona went even further, describing the freeze as a missed opportunity to lower beer duty to save pubs – which foot an annual bill pf £3.6bn in beer duty​, higher than their counterparts in Germany, Spain, Italy, the Netherlands and Ireland combined.

“Freezing alcohol duty is obviously better than a rise,” he explained. “However, CAMRA had hoped to see the Chancellor announce a cut in duty on beer served on tap in pubs and social clubs to benefit consumers and help the great British pub recover and thrive in the difficult months and years ahead by being able to compete with supermarket alcohol.  

“The Government’s commitment to review alcohol duties in the coming months is welcome,” he continued. “CAMRA will continue to call for a lower rate of duty for beer served in pubs – an option available to the Government now we have left the European Union.”

Is furlough extension a ‘sticking plaster’?

Arguably the Government’s flagship pandemic policy – and worth £700m to pubs and brewers, according to the BBPA – the Coronavirus Job Retention Scheme (CJRS) will be extended until the end of September, with employers required to partially pay hours worked​ from the summer.

Described as a “surprise extension” by Greater Manchester’s night-time economy adviser, Sacha Lord, the Chancellor’s furlough announcement has been hesitantly welcomed by the wider trade.  

 “The extension of the scheme brings stability and peace of mind to employees after a dreadful year of uncertainty,” UKH’s Kate Nicholls explained. “There is still a worry that it will place unnecessary pressure on fragile businesses just as they are beginning to get back to their feet, though.”

What’s more, Patrick Frawley – who runs five pubs and bars in the capital under the East London Pub Co – describes the measure as “welcome” but “a sticking plaster”. 

“The furlough system needs reviewing so employers can take on staff confident in the knowledge that they’ll be supported if another lockdown happens,” Frawley explained. “We opened a pub in Soho just before the first lockdown but because it had only been open a couple of weeks the 51 new employees weren’t eligible for furlough, which was devastating for them.” 

However, the BBPA’s Emma McClarkin, took comfort in the fact that the Chancellor’s announcement will save thousands of pub jobs.

“It gives the sector time to reopen and rebuild trade before bringing all staff back, which would otherwise be too costly and unviable whilst still facing trading restrictions until end of June,” she explained.

Stones left unturned?

While the Chancellor’s £65bn support package appeared comprehensive in its attempts to cater for the ailing hospitality sector, stakeholders have highlighted what they perceive to be glaring omissions. 

The “biggest gap” in support remains the outstanding rent debt, according to UKHospitality chief executive Kate Nicholls. 

“We need the Government to announce an extension of the moratoria at the earliest opportunity and work with industry to establish a landing zone to resolve this £2bn millstone around our recovery,” she said.

What’s more, Greater Manchester’s night-time economy adviser and the co-Founder of Parklife Festival, Sacha Lord, expressed concern at the continuing lack of Covid indemnity insurance policy for event organisers.

“We have already lost the likes of Glastonbury this year, and there are hundreds of smaller events which have been cancelled due to a lack of support and policies available,” he says. 

“However, having been involved in many All-Party Parliamentary Groups on the subject, I know it is a matter Westminster and the Treasury are looking into and I will continue to push the Government on driving this through."

Apprentices, freelancers and the self-employed

On top of the extension of the furlough scheme and boosting the national living wage​ by 19p (2.2%) to £8.91 from April, the Chancellor announced a pair of well-received job measures – which sector stakeholders believe will benefit pub sector staff as the industry navigates the Government’s lockdown roadmap.

UKHospitality chief executive Kate Nicholls described doubling the recruitment incentive – currently employers receive £2,000 for every apprentice they take on under the age of 25 and £1,500 for those over 25 – as a “major boost” in helping the hospitality sector recover from its Covid symptoms.

“The doubling of the apprenticeship incentive will be a major boost for our sector’s recovery and aids our commitment to upskilling people across the country,” she said. “Driving the economic recovery of the UK will be dependent on getting people back into work and this will be a huge help. 

“The hospitality sector is going to be a key weapon in the country’s arsenal if it wants to rebuild the economy and tackle unemployment.”

What’s more, Greater Manchester’s night-time economy adviser Sacha Lord praised the Chancellor’s support for freelancers and self-employed workers. 

“Alongside the Mayor of Greater Manchester, Andy Burnham, I have continually called for support for the three million freelancers and self-employed workers who have been excluded from any financial aid,” he explained. 

“Many of these self-employed freelancers work within the night-time economy and its been an injustice to watch them struggle over the past twelve with no support or recognition. 

“Today, over 600,000 have been helped which is a good start, but there is clearly still more to be done and I hope to see further support announced for this group in due course.”

Verdict: far from ‘job done’

While the BBPA, UKHospitality and the BII all welcomed the Chancellor’s statement to a degree, they each stressed that it was simply a solid start in helping operators back on their feet in line with the Government’s roadmap in the long run and that more work lies ahead. 

UKHospitality chief executive Kate Nicholls commended the Chancellor for listening to the sector’s concerns and applauded what she believed to be “crucial support” at a “critical time”. 

“The Chancellor has announced support to help our sector get back up and running, now it is vital that the Government sticks to its date of 21 June for a full reopening of the sector,” she said. “Delay would see more businesses fail, more jobs lost and undo much of the good work the Chancellor has done to date.” 

Steve Alton of the BII concurred that Sunak’s support package had laid the foundation so that pubs can “begin to look to the future of their businesses once more”. 

“The support announced gives our sector an opportunity to rebuild as they reopen in line with the Government roadmap, however, any changes to their plan will need to be matched with appropriate support measures,” he said.”

Addionally, BBPA boss Emma McClarkin summarised that Sunak had announced “a good Budget for pubs and breweries in the short term”.

“However, this is just the start of the journey on the hard road to long-term recovery for our sector,” she continued. “The Chancellor has made it clear today he recognises the vital role local pubs play in their communities. 

“Now he must continue that commitment by ensuring Britain’s pubs and breweries are supported in the long term."

Rishi Sunak

Rishi’s record

A year since his first Spring Budget, the latest statement appears to have satisfied a number of Sunak’s on-trade critics – who took exception to his “mini-budget” in July and Winter Economy Plan last year, becoming more vocal by the announcement – but far from fully redeemed the teetotal Chancellor.   

While food-led venues have benefitted from the VAT cut and Eat Out to Help Out (EOTHO) during the past year, wet-led pub operators in particular have had precious little to raise a glass to. 

In his first Budget on 11 March – less than a fortnight before pubs were forced to call last orders due to lockdown measures – Sunak appeared to pay critical attention to the pub sector and its impending challenges in the eyes of many commentators. 

It seemed that pubs and their staff would be shielded from a degree of pandemic fallout with alcohol duty curbed and pubs with a rateable value of less than £51,000 having business rates scrapped for the next 12 months among measures announced.  

In July, the Chancellor delivered a Summer Statement to the House of Commons in which he laid out measures including a cut on VAT and the EOTHO scheme.

While his apparent awareness of the value of the hospitality sector was praised at the time, the sector seemed split over whether EOTHO was a stroke of creative genius or a “tokenistic gimmick” and he was criticised for appearing to leave wet-let pubs out in the cold.

While Sunak’s “mini-budget” – a £30bn relief package to help the UK economy recover from the Covid-19 – received a smattering of warm reviews from the on-trade, the pub sector reaction to his “winter economy plan” was largely frosty. 

This criticism of the Chancellor was repeated in September, when Sunak was criticised for leaving pubs out in the cold in his Winter Economy Plan – with The Morning Advertiser’s editor Ed Bedington describing his measures as “not good enough”. 

While Sunak extended measures such as the VAT cut, announced a new Job Support Scheme and unveiled a new “pay as you grow” programme to help business repay Government-backed business loans, he drew sterner criticism than in July on account of his measures not being deemed to go far enough for hospitality.

Related topics: Legislation

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